(BPT) - No right-thinking person would ever claim that the financial side of military life is the land of milk and honey. Even so, military life provides some perks that don't exist in the civilian world.
If you're active-duty military and thinking about getting out soon, it pays to understand how your personal financial landscape will change when Uncle Sam is no longer issuing your paychecks.
First, don’t overlook the not-so-small matter of finding a suitable place to begin your post-military career. Take a look at the 2013 Best Places for Veterans: Jobs list for metro areas that offer America’s new generation of veterans more opportunities to find a job that correlates with their military-related skills. Houston, Dallas and Minneapolis landed the top spots in the study, commissioned by USAA and the U.S. Chamber of Commerce Foundation’s Hiring Our Heroes program.
Once you secure that civilian gig, here are two specific areas where USAA Certified Financial Planner Scott Halliwell predicts you’ll see the biggest differences in benefits and pay.
No more tax-free allowances: If you've been in the military for any length of time, you've no doubt realized some of your pay comes to you free of tax. Basic allowance for subsistence (BAS) and basic allowance for housing (BAH) are two of the most common sources. What you may not realize is just how much of your hard-earned cash this tax treatment saves you.
For example, a married E-6 living in San Antonio who has one child and has been serving for more than 10 years would have a taxable base pay just shy of $39,600 annually. His non-taxable BAS and BAH would total just more than $21,300. Looked at another way, about 35 percent of this family’s income would be free from taxes. If this BAS/BAH combo was instead taxable, the service member and his family could lose around $250 each month to taxes – and that’s just in federal taxes. State taxes, if applicable, could make it even more.
In other words, civilian pay and military pay are not an apples-to-apples comparison, so you’ve got to plan accordingly.
No more free health insurance: And while a couple hundred bucks a month is nothing to sneeze at, that could just be the tip of the iceberg. Health insurance in the military is, to put it lightly, very cost-effective. Not everyone is always thrilled with how the whole system works, but you just can’t get much more cost-effective than free.
In the civilian world, the average cost for employer-based insurance plans for a family of four is around $1,300 per month, according to a study conducted by the Kaiser Family Foundation. The good news is that most folks don’t have to foot that entire amount. Civilian employers typically subsidize these costs so that the average monthly employee expense is about 28 percent, or $360 per month. Even so, costs for health care can vary widely from one employer to the next.
Also, it’s important to know these numbers are just the premiums employees pay for the insurance. The numbers don’t include co-pays, co-insurance or deductibles you might have to pay. The national average for these expenses for a family of four is about $3,600 per year, according to a study reported in the Milliman Medical Index. When you add these costs to the insurance premiums you’ll have to pay, health care-related costs can easily be one of the single biggest cash outflows each month for civilians. And that’s without adding in expenses for vision and dental care.
These are just two of the big financial changes people face when they leave the military, but they aren’t the only ones, so it’s important to have a solid game plan in place ahead of time. To help build out a plan, spend some time with the Separation Assessment Tool and the Separation Checklist on usaa.com.